Singapore: Asian shares rose to their highest in nearly 3 years on Monday after strong US jobs growth spurred optimism about the global economy, and the euro hit an 11-month peak against the yen amid expectations of a euro zone rate hike later this week.
Data showing US employment grew solidly for a second month in March boosted Wall Street on Friday. Investors interpreted it as a sign of a strengthening economic recovery, although most analysts did not expect it to prompt the Federal Reserve to change its ultra-loose monetary policy for the time being.
In contrast, the European Central Bank is seen as almost certain to raise borrowing costs by 25 basis points on Thursday, supporting the single currency despite worries about the crushing debt burden of some euro zone countries.
“Firmness in US shares and the weakness of the yen, especially against the euro, encouraged buying in the export-related sector,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.
US crude oil rose near its highest in 2-1/2 years as unrest in the Middle East and fighting in Libya stoked fears of supply disruptions. Gold edged up, supported by crude prices and the stronger euro.
Japan’s Nikkei rose 0.7%, spurred on by gains on Wall Street on Friday, when the S&P 500 rose 0.5%.
The weakening yen may help Japanese exporters, although the outlook for Japan remains clouded by uncertainty over the full cost of a devastating earthquake and tsunami on 11 March.
Big Japanese manufacturers expect business conditions to worsen in the next three months, responses to a Bank of Japan survey collected after the quake showed, as rolling power blackouts and a nuclear safety crisis threaten to delay the return to a moderate economic recovery.
Although it has recovered much of the ground lost during its steep tumble in the aftermath of the quake, the Nikkei remains nearly 5% below its 11 March close.
MSCI’s broadest index of Asia Pacific shares outside Japan rose 0.6% and touched its highest level since May 2008, its second near 3-year peak in as many days.
Emerging markets -- led by Asia -- saw their first monthly gain of the year in March, outperforming world and developed market stocks for the first time since September, strategists at Citi said in a note.
The euro traded around ¥119.80, after breaching the ¥120 level for the first time since last May. The dollar was steady at ¥84.15, having reached a six-month high around 84.72 on Friday.
Investors are positioning for an increase in the ECB’s key interest rate to 1.25%, widening the euro zone’s yield advantage over the United States, Britain and Japan, where policy rates remain at record lows.
Against the dollar, the single currency hit a five-month high against of $1.4269 on trading platform EBS earlier on Monday, having gained a lift from some stop-loss buying, traders said, and was later buying around $1.4225.
“Coming into the ECB meeting this week, we have to anticipate further euro gains,” said Todd Elmer, currency strategist at Citi in Singapore.
The Bank of Japan is likely to downgrade its economic assessment this week, which is likely to weigh on the yen. The currency has been under pressure since a rare coordinated G7 intervention to weaken it last month.
Market players have even started talking about a return of the yen “carry trade”, the strategy of using cheap yen loans to fund investments in higher yielding assets or currencies.
US crude oil futures rose 0.6% to $108.54 a barrel, while Brent crude was up 0.4% at $119.12. Gold traded around $1,430 an ounce.
“We saw the continuous geopolitical risk in the Middle East crisis, and oil prices going higher,” said Darren Heathcote, head of trading at Investec Australia.
“It certainly looks to me that gold has been tracking both oil and euro quite closely in past few days.”
Japanese government bond 10-year futures were almost unchanged ahead of a 2.2 trillion yen auction, seen as a litmus test of investor appetite in the new financial year, while the benchmark 10-year yield rose 1 basis point to 1.285%.